How to Cut Business Expenses

October 14, 2020
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In a time of financial uncertainty, every dollar you save matters. This is particularly true for small- and medium-sized businesses (SMBs), where the cumulative effects of expenses can have an outsized impact on profitability.


Cutting business expenses doesn’t require an entire organizational paradigm shift or massive overhauls. In many cases, the true savings are found in the small, common-sense tweaks and adjustments. Added up over time, they can make a massive difference on your bottom line.    


Want to know how to reduce business expenses? Below are seven simple money saving ideas for businesses to make that happen:


  1. Set budgets
  2. Control miscellaneous spending
  3. Remove manual processes where possible
  4. Use the right business card
  5. Reduce supply costs and negotiate with vendors
  6. Minimize your tax bill
  7. Decrease utilities usage and encourage telecommuting


#1 Set Budgets

No matter what size or stage your business is in, it’s vital to build and then stick to a budget. Following basic business budgeting tips can serve as your financial roadmap, guiding you toward your financial goals.


Ask yourself: What are the drivers of your business? Where can you invest your money to have the most outsized impact on the future valuation of the company? Use these answers to gain a better idea of where to strategically invest or cut back.


Taking proper stock of your cash flow is the first crucial step toward cutting business expenses. You need to know where your money is being spent and then analyze the ROI on those resources. Otherwise, there’s no way to see whether or not the money is being effectively utilized.


Wondering how to build a budget for a small business? Here’s a quick summary:


  1. List your goals
  2. List your income sources
  3. Determine fixed costs
  4. Determine variable costs
  5. Account for unexpected expenses
  6. Create a profit and loss (P&L) statement
  7. Use budget as a roadmap


#2 Control Miscellaneous Spending

Your last task of building a budget includes identifying areas of miscellaneous spending and then getting those under control. Harvard Business Review writes, “In some departments, it’s supplies; in others, it’s telecom or computers. You can almost always find 15% to 20% of spending that hasn’t been managed closely.”


You should keep an eye on spending in real-time and then conduct frequent reviews to gauge what’s producing ROI and what isn’t. For instance, there may be SaaS solutions that are used infrequently or are simply redundant. Employees may be making too many frivolous expenditures. Whatever it may be, if expenses are failing to generate a solid return on interest, they need to be cut.  


Discovering overspending manually can be a painstaking process, but automation can simplify things. Automated processes can identify areas where your expenses aren’t generating ROI or where there are redundancies. For instance, certain corporate cards have mechanisms that either prevent overspending or come with pre-approved spending limits, thus controlling miscellaneous spend automatically.


#3 Remove Manual Processes Where Possible

Human beings are less effective and accurate than machines. And yet, far too many business processes still rely on people to perform repetitive, frustrating tasks. Processes such as...


  • Order processing
  • Account reconciliation
  • Talent recruiting
  • Budgeting
  • Financial analysis
  • Performance evaluations


...can be completely automated. Not doing so doesn’t just invite human error, it creates room for competitors to outperform your company. According to District Labs:


“While these processes may seem to be working ‘well enough’ at the moment, continuing to perform them manually is slowing the company down... This prevents them from being as efficient and productive as they can be, which ultimately puts them at a competitive disadvantage.”


Optimization is all about using your resources as effectively as possible. By automating manual processes, you can:


  • Increase speed and accuracy while cutting down on errors
  • Finish tasks faster and cheaper
  • Empower employees to use their expertise where it’s actually needed


For example, consider the accounting reconciliation process. When performed manually, closing the books at month’s end can take multiple days, sometimes weeks. Whether it’s chasing down receipts, badgering employees to file business expense reports, or dealing with inaccurate reports, all of these things only make your accountant’s job more time-consuming.


A much more effective use of the company’s resources would be to leverage a business expense management software that integrates with the accounting team, reconciles transactions in real-time, and provides customized savings audits. By automating time-consuming tasks, you gain better control and visibility over spending; all the while, you streamline a process that once took days into an activity that now only consumes a few hours of time. As a small business owner, the time saved is priceless.


#4 Use the Right Business Card

A business card can be an easy financial tool to help you conduct your business. But it’s all about choosing the right card. Ideally, you want a card that can help you save money and cut expenses.


There are certain factors you need to consider when choosing the best card for your business, including:


  • Cash back vs points – Many business cards use convoluted rewards or points programs that incentivize you to spend on things you might not need in order to rack up points. Even then, they tend to provide little bang for your buck, or they limit where or when you can use them. The best option available is direct cash back for credit cards. With it, you’ll get money back on everything you're paying for guaranteed.
  • Fees – Most cards have setup costs, recurring subscriptions, hidden fees, or foreign transaction fees. The best cards don’t include these types of extra costs.
  • Interest – The real money maker for credit card companies are the high interest rates that need to be paid on a monthly basis. Lower interest rates are better. No interest rates are best.


Because of the drawbacks associated with typical business credit cards, many companies have switched to corporate charge cards. In exchange for fully paying their balance each month, there’s no interest or fees.


If you start looking for a charge card, select one that allows you to control what people can spend and where.


#5 Reduce Supply Costs and Negotiate with Vendors

Business supplies can often be one of your largest variable costs, especially as your business scales. Even something as small as printing supplies—paper and ink—can quickly add up.


Are you getting the best deal possible on your supplies?


If you regularly make wholesale supply purchases, ensuring that you’re getting the lowest prices can make a significant impact on your bottom line. To accomplish this, you must regularly monitor your supply costs, search for discounts, and aggressively pursue alternative wholesale options. If you find a better deal elsewhere, don’t be afraid to make the switch or renegotiate with your current vendor.


But supplies aren’t the only thing you have to consider. There are other large vendor categories that should be reviewed and re-negotiated (if necessary), including:


  • SaaS
  • Shipping
  • Inventory purchases
  • Office


Pay your bills promptly and build solid working relationships with vendors and suppliers to cut business costs. This will help incentivize your current partner to offer discounts. Another way to cut expenses is to see if other businesses are willing to partner with you to pool resources and get a better rate for buying more supplies.  


It’s important that you stay on top of your spend. Technology can also help you gauge your vendor relationships and expenses. Automated vendor management software allows you to see what your spending on suppliers, track duplicative expenses, and benchmark business costs. If things are getting out of hand, or when large bills are on their way, you need to be alerted—this allows you to stay ahead of the spend creep.


#6 Minimize Your Tax Bill

Lowering your tax bill is one of the easiest ways to save money.


As a business owner, your goal should always be to pay as little taxes as possible. It’s this drive that has famously led Amazon—a company with a net worth over $1 trillion—to go years without paying federal taxes. To accomplish this, you must maximize all potential business deductions while reducing your tax liability. Ways you help yourself with this include:


  • Tracking all of your expenses
  • Save receipts
  • Match receipts
  • Categorize transactions


Ariel Gamburg, founder of Gamburg CPA, writes, “As your business grows, with new revenue streams, increased payrolls and new methods put in place to maximize margins, your tax strategies will also change and can always be optimized accordingly… There’s a wealth of creative ways to legally minimize taxes, just as there are ways you’ve been using technology to maximize efficiency.”


As discussed in other sections, turn to automation to help you in this endeavor. Automated systems can instantly track, match, and categorize all business expenses, making tax preparation a breeze.


#7 Decrease Utility Usage and Encourage Telecommuting

There are dozens of unavoidable business expenses that quickly add up. Whether it’s renting office space or running A/C, your job is to cut down on those unnecessary costs, if not eliminate them entirely.


When it comes to renting an office, COVID has demonstrated that many jobs can be done from home. So, once life returns to normal, look for roles in your business that could be done via telecommuting. Changes like this could help you:


  • Reduce your utility costs
  • Decrease the necessary office space
  • Reduce time lost to commute and travel


If you’re trying to reduce utility bills, consider investing in passive energy-saving measures like smart thermostats, double pane windows and other technologies. Additionally, follow best practices such as powering down the office after work.  


Ramp: The Key to Cutting Expenses

A penny saved is a penny earned. Add them up, and you’ll be surprised how much you save over time.


While there are significant areas of cost savings, there are also little changes you can make that have a positive ripple effect on your bottom line. So, as you look for how to cut business expenses, consider the following actions:


  1. Set budgets
  2. Control miscellaneous spending
  3. Remove manual processes where possible
  4. Use the right business card
  5. Reduce supply costs and negotiate with vendors
  6. Minimize your tax bill
  7. Decrease utilities usage and encourage telecommuting


Many of these processes would be aided by embracing automation. This is where Ramp can help.


At Ramp, we provide a first-of-its-kind corporate card that comes with built-in mechanisms to help you better manage your finances and accounting. Whether it’s 1.5% cash back on every purchase, real-time visibility on transactions, or improved expense reconciliation, Ramp is purposefully designed to help you cut expenses or unnecessary costs.



Sources:

Harvard Business Review. When You’ve Got to Cut Costs—Now. https://hbr.org/2010/05/when-youve-got-to-cut-costs-now

District Labs. 5 Reasons to Automate Manual Processes in Your Business. https://www.districtdatalabs.com/automate-business-processes

Forbes. How To Legally Minimize Your Tax Expenses To Increase Your Bottom Line. https://www.forbes.com/sites/forbesnycouncil/2018/09/14/how-to-legally-minimize-your-tax-expenses-to-increase-your-bottom-line/#7f134be6550c


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